By Katherine J. Hart

In Communities for a Better Environment v. South Coast Air Quality Management District et al., the California Supreme Court determined that the air district issuing a new permit to a petroleum refinery seeking to introduce a new industrial process to its existing refinery, incorrectly determined the baseline upon which to analyze environmental impacts. Specifically, the Court concluded the baseline could not be based on the maximum permitted operating capacity of the existing equipment but rather had to be based on the physical conditions actually existing at the time of environmental analysis. The facts are as follows.

ConocoPhillips proposed to develop an Ultra Low Sulfur Diesel Fuel Project (Project) which would require a permit to construct modifications to its existing facilities, installation of new facilities and substantially increasing the operation of its cogeneration plant and boilers. The plant and boilers were subject to existing permits limiting the rate of their heat production. ConocoPhillips applied to the South Coast Air Quality Management District (District) for a permit to construct.

The District prepared an initial study and then a negative declaration and concluded the Project would not have any potentially adverse environmental impacts. During the environmental review process, Plaintiffs submitted evidence that the Project would increase nitrogen oxide (NOx) emissions by over 600 pounds per day, which could cause adverse health affects. The District itself determined the increased steam generation from the cogeneration plant, in addition to other newly proposed activities, would create between 201 and 420 pounds per day of additional NOx emissions. The District had adopted a threshold of significance for NOx of 55 pounds per day. Still, the District determined the Project would not have a significant environmental impact because the increased operations of the existing steam generation equipment would not exceed the maximum rate of heat production allowed under the existing permits.

The Supreme Court analyzed whether: 1) the prior operating permits established a baseline for review under the California Environmental Quality Act (CEQA) of what it categorized as a “new project”; and 2) whether the record supported a fair argument the Project would have significant adverse effects on the environment.

In addressing the first issue, the Court cited § 15125(a) of the CEQA Guidelines and noted “the impacts of a proposed project are ordinarily to be compared to the actual environmental conditions existing at the time of CEQA analysis, rather than to allowable conditions defined by a plan or regulatory framework.” The District and ConocoPhillips argued that using the pre-project NOx emissions as a baseline for analyzing the Project’s effects would violate vested rights held by ConocoPhillips to operate its boilers at permitted levels; the Court disagreed. The District and ConocoPhillips contended that using the existing conditions baseline would violate the statute of limitations because CEQA analysis of the Project did not constitute review of the District’s previous approval of the boiler permits; the Court disagreed noting that petitioners did not attempt to set aside the District’s approval of the boiler permits – just the Project, which was timely challenged. Finally, the District and ConocoPhillips argued that numerous court of appeal decision support the use of maximum operational levels allowed under a permit as a CEQA baseline; again, the Court disagreed by factually distinguishing the Project from those in the court of appeal cases as more than a mere modification of a previously analyzed project or the continued operation of equipment without significant expansion of use. The Court held “the District’s use of the maximum capacity levels set in prior boiler permits, rather than the actually existing levels of emissions from the boilers, as a baseline to analyze NOx emissions from the [Project] was inconsistent with CEQA and the CEQA Guidelines.”

On the second issue – whether the record supported substantial evidence of a fair argument that the Project would have significant adverse effects – the Court held that the District’s own negative declaration provided evidence the Project would have substantial air impacts and thus, an environmental impact report (EIR) should have been prepared. The Court remanded the issue of how to calculate the true baseline to the District for analysis in the EIR for the Project.

Katherine J. Hart is a senior associate at Abbott & Kindermann, LLP. For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, LLP at (916) 456-9595.

The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, nor the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.